"Greece, unfortunately, has two fundamental issues. It has
too much debt and it cannot grow enough. What the response
so far has been let's treat this as a liquidity problem, not a
solvency and growth issue. One year into a massive bailout
every indicator in Greece was soft. And other parts of
Europe have gotten contaminated, including the ECB. If you
continue with this approach, which is treating Greece as a
liquidity problem, not a solvency problem, not only do you not
solve it, but you risk contaminating other parts of
Greece."

On a default in Greece as the only way out for the
Eurozone:

"[Default] through a restructuring. Identify the problems
are a solvency issue, address it, and then try to safeguard other
parts to minimize fundamental contagion. We will get
technical contagion, but that tends to be temporary and
reversible. What Europe should to be doing and working hard
at is minimizing fundamental contagion."

"Let the technical contagion play out. Market
participants understand what that is. It will be a
disorderly process for a while, but the markets will find a
footing. The critical thing is not to contaminate the whole
system. That is what we are risking day in and day out if
we continue with a liquidity approach for a solvency
issue."

On the IEA releasing crude oil reserves
today:

"What we are seeing is that the governments are getting
more and more sucked into the markets. Phase one in the
fourth quarter 2008 and 2009 was about governments normalizing
markets. The phase two, August 2010, when Bernanke was
talking about QE2, was about governments trying to push up
valuations to get as all to feel wealthier and spend more.
But then we get good and bad inflation. Phase three, and
today is an example of that, is governments are coming in and
trying to distinguish between good and bad inflation. The
problem with all of this is that markets get very nervous when a
non-commercial player comes into the market and you're seeing
that today."

On Bernanke's press conference yesterday:

"I was surprised that [Bernanke] did not go further
yesterday. He said the slowdown is partly due to temporary
factors. The U.S. faces structural headwinds. In order for
us to regain the growth rate and overcome unemployment, we have
to overcome these structural headwinds. The Fed is only
starting to realize that. Yesterday was a step toward that, but
not big enough. We need to make that step if we are willing
to get growth higher and unemployment lower in the U.S."

On what the Fed could do to address the structural
problems:

"They need help from other agencies. If you look at
what the four structural issues are--they are housing, bank
credit, public finances, and the functioning of the labor
market. These are things outside the domain of the Fed so
to expect the Fed to do the heavy lifting is too ambitious.
Other agencies have not yet stepped up the plate in a coordinated
fashion. "

On QE2 and whether QE3 should be on the table right
now:

"QE2 is to increase asset prices within QE2, getting growth
higher. We got the first phase, but not the second
phase. That is not surprising because in order to get the
second phase, you have to overcome the structural
impediments. Now the economy is in this very uncomfortable
position where we have a wedge between fundamentals down here and
valuations that have been pushed up by QE2. QE3 would be
also unlikely to meet the ultimate objective, which is a better
economy."

On where he sees crude oil three months from
now:

"I suspect a lot will depend on whether this is a one-step
process or whether the IEA and the consumer countries are trying
to give a bigger signal. If you look at the numbers, it is
not a huge issue. But what the markets are waiting on is
the signal about government involvement. It is hard to
predict the actions of a non-commercial player in the
market. Over the next few months, I think we will see a
tremendous amount of volatility not only in oil, but other asset
prices."

On what it will take to get companies hiring and
spending again:

"If you look at economic spending, there is cash
available. There is a wallet, but not the will. When
you go to the upper income households that are doing fine, it is
the question of will. For the will to be there, you need
greater clarity. Need greater clarity about the outlook,
global growth and what policy makers want to do. Until we
get that clarity, a lot of people will be keeping their cash in
their pockets, unfortunately."

On where he sees equities and bonds in the next few
months:

"This is the bumpy part of it. People are starting to
recognize that there are some major realignments going on.
Over the next few months we will see unusual amount of volatility
in the market…It is going to be a volatile and messy
process. People should have dry powder because there will
be lots of opportunities to become a good assets for cheap
prices."